There are a lot of reasons why people may want to invest in the stock market. Here are some of the top reasons why people think that playing the stock market is a great investment strategy:
1. Financial Freedom – This is the main reason why most people are interested in the stock market. Some of us are not satisfied with our day jobs and are looking for an escape from the typical 9-5 workday. Others would just like to make some extra money. Investing in stocks can give you that financial freedom. In fact, many traders earn a living from just trading stocks. Day traders buy and sell stocks frequently, buying stocks when the prices are low, and making hefty gains when they sell at high prices. The downside is that as easy as it may sound, it is actually not that easy. There is a risk that you will lose money in the stock market. Not everyone can make money from investing in the stock market, especially if you just speculate. However, with the right amount of dedication and research, you may find yourself making money from investing and giving yourself that financial freedom.
2. Saving for Future/Retirement – Instead of actively trading invest in stocks for the long term. This is the passive method of investing, where you buy certain stocks and hold it over time. This strategy is good if you don’t have a lot of time on your hands. You still need to monitor your portfolio from time to time but you don’t need to actively trade. For example, imagine if you had bought Google or Apple a few years ago and held it until now. Your investment would have skyrocketed without having the need to actively trade.
3. Diversification – Investing in stocks is one method to keep a diversified portfolio. This is important because you don’t want to keep all your eggs in one basket. Along with investing in bonds, mutual funds, and your 401(k) plan, stocks will help diversify your portfolio further. Diversification will allow you to reduce your risk by allocating your money to different investments. That way if one financial instrument is doing poorly, it won’t impact your portfolio as much.
Reasons why people may want to invest in the stock market are not only limited to the ones I have listed above. There are actually many more reasons why others invest in the stock market. For example, some people just like to invest for fun and like the thrill of it.